Helios Underwriting Building a Capacity Fund Introduction to - - PowerPoint PPT Presentation

Helios Underwriting

Building a Capacity Fund

Introduction to Helios:

‘The’ Consolidator at Lloyd’s for Private Capital

Who you are meeting today

Helios Underwriting plc 3

Nigel Hanbury Chief Executive Officer Nigel was appointed CEO in October 2012. He joined Lloyd's in 1979 as an external member and became a Lloyd's broker in 1982. He later moved to the Members' Agency side, latterly becoming Chief Executive and then Chairman of Hampden Agencies Limited. He serves on the board of the Association of Lloyd's Members and was elected to the Council of Lloyd's for the "Working Names" constituency, serving on that body between 1999 and 2001 and then 2005 to 2008, as well as participating on the Market Board and other Lloyd's committees. In December 2009 he ceased being Chairman of Hampden and in 2011 acquired a majority stake in HIPCC, a Guernsey cell Company, formerly wholly owned by Hampden plc. Nigel and/or his direct family underwrite at Lloyd’s through three LLV’s . Arthur Manners Finance Director Arthur has over 20 years’ experience in the insurance industry. He has been a consultant to Helios since June 2015 and joined the Board in April

• 2016. His role as Finance Director at Helios is part time. He previously

worked for Beazley Group plc from 1993 to 2009 as Finance Director and latterly as Company Secretary. He remains Chairman of the Trustees of the Beazley Furlonge Pension Scheme. Arthur and his family underwrite at Lloyd’s through an LLV.

Consolidation of Private Capital at Lloyds

• Addressable market of approximately £2bn – the capacity held by the remaining members
• Change of sentiment for owners of smaller LLV’s. Rising costs, regulatory pressure, pressure on profit margins and a requirement to

fund recent losses all causing concern for an aged investor base

• The solvency funding requirement from 2017 and 2018 losses is starting to ameliorate – releasing cash back to Helios
• Good flow of vehicles for sale – 28 sold in 2019, more expected this year

Source: Lloyd’s & Members’ Agents Website

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Members

(c.1,500/c.£1m)

Policyholder Brokers Coverholders Business Private Capital £2bn of Capacity Lloyds’ Market £36bn of Capacity £27bn of Underwriting Capital

Helios

40 Members £69m of Capacity

Ou Our mod

• del expl

ploi

• its

s a unique window as s pr private capi pital evol

• lves

• Combine the capacity owned by smaller Limited Liability Vehicles (LLV’s)

to build a capacity fund and to achieve cost efficiencies. Reinsurance capital utilised to enhance pace of growth and reduce risk.

• Ownership of 100% of the capacity fund
• By retaining 30% of the underwriting risk
• Ability to buy assets at below fair value
• Significant future dividend income stream through double use of assets

and low correlation of risk inherent in a fund of Lloyd’s underwriting capacity

Business Model Summary

To To build a fu fund of f capacity of f le leading syndicates at Llo loyd’s

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Pivot to Income Fund Value Drivers Consolidation

High quality underwriting portfolio

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To Top seven holdings by Managing Agent comprise 76 76% of the 2020 portfolio

Syndicate Managing Agent Capacity Total £000s % 510 Tokio Marine Kiln Syndicates Ltd 13,077 19% 623 Beazley Furlonge Limited 9,572 14% 33 Hiscox Syndicates Limited 8,358 12% 2791 Managing Agency Partners Limited 6,298 9% 609 Atrium Underwriters Limited 5,717 8% 5886 Blenheim Underwriting Limited 5,333 8% 218 ERS Syndicate Management Ltd 5,115 7% Subtotal 53,470 76% Other 16,730 24% Total 70,200 100%

• For the closed years of account 2013 – 2017 – the Helios portfolio outperformed the Lloyd’s Market result by

an average of 7% per year

• Aggregate added value of £18m generated in excess of average Lloyd’s Market result – equivalent to 100p

per share in 7 years.

• Other syndicates supported include: Meacock 727, Nuclear 1176, Cathedral 2010, Beazley Tracker 5623

Results to 31st December 2019

Commentary

• Profit before impairment of £2,426,000 (2018: £608,000)
• The adjusted net asset value per share is £2.06 per share (2018: £1.90 per share)
• Increased underwriting profits reflect improved underwriting conditions and higher investment returns at syndicate level
• The gain on bargain purchases, acquiring assets at below their fair value, contributed £1.7m to operating profits (2018: £1.2m)
• The increase in costs reflects the foreign exchange losses on US$ as opposed to FX gains in the comparable period
• The value of the fund increased to £26.4m, an increase of 28%
• Pre-emption capacity acquired for no cost increased the value of the portfolio by £2.5m
• In view of the COVID-19 uncertainty, no final dividend is being recommended (2018: 3.0p)
• Too early to quantify COVID-19 impact but is expected to fall mainly on 2019 year of accounts

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Year to 31st December 2019 2018 2017 Underwriting profits (£'000's) 3,261 782 183 Other Income (£'000's) 2,557 1,879 1,278 Costs (£'000's) (3,391) (2,054) (1,867) Profit for the year before impairment (£'000's) 2,426 608 (406) Adjusted net asset value per share (£) 2.06 1.90 1.60 Value of Capacity Fund (£m) 26 21 13 Capacity Fund (£m) 69 53 41

Value drivers for Helios

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Capacity Fund 30% of underwriting profits Acquiring assets at below fair value

Changes in Capacity Value Fees & PC from reinsurers 28% increase in capacity value to £26.4m Pre-emption capacity - £2.5m £0.2m fees & £0.6m sale of capacity 30% share of underwriting profits Profits roll up from acquisitions U/wing profits - £3.2m Acquisition Activity – Typically acquire below fair value Corporate / Administration Acquiring assets at below fair value – Negative G’will £1.7m Corporate costs – (£2.3m)

From Financial Statements – 2018

Covid–19, Current Market Conditions and Risk Management

Co Covid 19

• The COVID-19 coronavirus pandemic will be a manageable loss for the insurance industry unless there is some kind of structural change to drive the

cost to the sector much higher

• Losses for event cancellation and Business Interruption have been identified and reserves to be lodged at Lloyd’s shortly
• Disputes over Business Interruption coverage largely outside Lloyd’s
• Other classes – such as Liability exposures – will take many months to be identified
• On-going re-underwriting of portfolios underway to mitigate exposures

Ma Market conditions

• The current turmoil is happening against the backdrop of the greatest momentum we have seen in (re)insurance pricing for many years
• The improvement in underwriting conditions is now accelerating on top of aggregate rate increase during 2019 of 5.4% (2018: 3.5%) following

catastrophe losses in 2017, 2018 and 2019.

• Further pre-emptions expected from supported syndicates to take advantage improved market conditions

Ri Risk Man anag agement

• The purchase of quota share reinsurance cedes 70% of the risk on the younger or “on-risk” years, which has remained consistent for the last three

years

• Helios purchases stop loss reinsurance for its 30% share of the portfolio with an indemnity of 10% of its share of the capacity and a claim can be made

if the loss for the year of account at 36 months exceeds 5% of capacity.

• In addition to the current funds lodged at Lloyd’s, Helios has available the following facilities to provide additional resources to fund the necessary

capital requirements:

• A bank revolving credit bank facility of £4m of which £2m has been drawn down, and
• The stop loss reinsurance contracts for the 2019 and 2020 years of account could provide additional underwriting capital of approximately

£5m.

• This available underwriting capital represents 20% of the portfolio’s current economic capital requirement (ECR)

To Too early to quantify COVID-19 19 impact but is expected to fall mainly on 2019 19 year of accounts

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Helios – Summary Funding as at 31 Dec 2019

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Cu Current Funding of Helios Gr Gross Capital Current Fundi ding He Helios Shareholders £000' £000'S % % of Book Va Value Sh Shareh eholder er Sh Shares es '000s % % Holding Ma Market Value £000' £000's Capacity Value 26,350 77% Will Roseff 5,188 30% 5,188 Helios Funds at Lloyds 16,288 27% N J Hanbury 4,028 23% 4,028 Helios other assets

• 6,550
• 11%

Other Shareholders 8,262 47% 8,262 Adjusted Net Assets 36,088 59% 17,478 100% 17,478 ANAV per share 2.06 Share Price 1.00 Re Reinsuran ance Cap apital al Current Discount to Adjusted Net Assets 52% Commercial Reinsurers 20, 20,663 663 34% High Net Worth Investors 4,000 7% 24,663 41% Gross Capital 60,752 100% Book Value 34,402

Summary

The Company is in a good position as: Pr Protection for for Co Covid-19 19 Lo Loss

§

Reinsurance structure to reduce exposure to underwriting risk

§

Stop Loss will mitigate the down side excess 5% loss on capacity for 2019 and 2020 years and provide additional underwriting capital “Ha “Hard market” ” underwriting conditions

• We are now in a hard market, not just rates but terms and conditions
• Flow of business to London is increasing fast. ILS trapped capital has reduced capital available in the reinsurance market raising cost
• f reinsurance leading to greater pressure to increase “insurance rates”
• Covid fears – the “Liability Tail” from Covid and following the recession will result in claims in classes such as D&O, Professional

Indemnity, Employers Practice – all will take time to materialise and quantify

Wi With the prospect of improving ng und underwriting ng retur urns ns Helios is well placed to deliver value ue to shareholders in n the fut utur ure.

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Ou Our size al allows us to pull levers that at can an man anag age risk an and d rewar ard d to optimise returns. No Not available to smaller private investors

Appendix

Additional information on Helios

Helios’ Year of Account results 2013-2019 v overall Lloyd’s Market showing added value

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• Aggregate added value of £18m generated in excess of average Lloyd’s Market result – equivalent to

100p per share in 7 years.

Note: Helios return based on capacity at the start of the underwriting year excluding capacity acquired subsequently

• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% Q9 Q5 2013 2014 2015 2016 2017 2018 2019

Return on Capacity

Helios Start Lloyd's Added Value

YOA % 2013 2014 2015 2016 2017 2018 2019 Q9 Q5 Helios Start 14.4% 16.6% 14.1% 8.6%

• 3.7%
• 3.7%
• 0.7%

Lloyd's 9.1% 10.7% 6.2%

• 3.1%
• 8.0%
• 6.6%
• 1.4%

Added Value 5.3% 5.9% 7.9% 11.7% 4.3% 2.9% 0.7%

Summary Financial Information

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31st Dec 2012 2013 2014 2015 2016 2017 2018 2019 £'000's £'000's £'000's £'000's £'000's £'000's £’000’s £’000’s Capacity Value per £ of capacity 0.24 0.37 0.36 0.42 0.46 0.32 0.39 0.38 NTA Per Share 0.69 0.63 0.81 0.89 0.94 0.71 0.47 0.56 Capacity per share 0.38 0.78 0.86 1.12 1.02 0.89 1.43 1.50 Adjusted Net Asset Value 1.07 1.42 1.67 2.01 1.96 1.60 1.90 2.06 Growth in Value 33% 18% 20% (2%) (19%) 19% 8% Share Price as at 31st Dec - £ 1.00 1.50 1.40 2.00 1.45 1.35 1.31 1.33 Discount to ANAV

• 6%

6%

• 16%
• 1%
• 26%
• 15%
• 31%
• 35%

Earnings per share 9.92 8.57 24.11 9.67 6.22 (4.8) 3.1p 24.64p Dividends per share Basic 1.5 1.5 1.5 1.5 1.5 1.5

• Special

3.0 3.6 3.5 4.0

• 1.5
• 4.5

5.1 5.0 5.5 1.5 3.0

• Yield

3.0% 3.6% 2.5% 3.8% 1.1% 2.3%

• Capacity values now at similar levels to 2013 – 2015
• Each 10% reduction in the capacity values at the 2020 auctions will reduce the ANAV by approx. 15p

per share. Any reduction in the value will be mitigated by any pre-emption capacity on syndicates that have a value at auction that is offered and taken up for nil value.

:

Shareholders

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• Helios Underwriting Plc has 18,390,906 ordinary shares of £0.10 in issue, including 412,878 ordinary

shares which are held in treasury. There are therefore 17,978,028 ordinary shares carrying voting and there are no restrictions on transfer.

• * 300,000 of Nigel Hanbury’s shares are jointly owned in accordance with the Company’s Joint Share Ownership Plan, as detailed in the announcement made by the Company on 14

December 2017.

• ** 200,000 of Arthur Manner’s shares are jointly owned in accordance with the Company’s Joint Share Ownership Plan, as detailed in the announcement made by the Company on 14

December 2017.

Significant Shareholders Shareholding Percentage of voting rights

Will Roseff 5,187,695 28.9% N J Hanbury (either personally or has an interest in)* 4,327,640 24.1% Hampden Capital Plc 1,214,560 6.8%

Directors

N J Hanbury (either personally or has an interest in) 4,327,640 24.10% Edward Fitzalan Howard, Duke of Norfolk 372,864 2.10% Arthur Manners (either personally or has an interest in)** 362,292 2.00% Jeremy Evans 66,483 0.40% Michael Cunningham 78,698 0.40% Andrew Christie 31,096 0.20%

Categories of business for 2020 (%)

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Source: Helios/ Hampden Underwriting Research

Reinsurance 22.7% Non Marine US$ Property 21.1% Non Marine US$ Liability 15.5% Non Marine non-US$ liability 8.5% Non Marine non-US$ Property7.6% Motor 9.3% Marine General 3.9% Energy 2.8% Accident & Health 2.3% Pecuniary Loss 3.7% Aviation 2.8%

Net realistic disaster scenarios for Helios’ 2020 portfolio

Lo Loss as % % of capacity gross of all quota share re re reinsura rance arra rrangements

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Source: Hampden Underwriting Research

Notes : The chart only shows the top net losses, not all Catastrophe risk scenarios RSs. The AEP (Aggregate Exceedance Probability) 1 in 30 figure is the weighted average of each syndicates' 1 in 30 projections which serves as a guide to the portfolio aggregate though the correct approach would involve combining the underlying distribution curves which are not provided in the Syndicate Business Forecasts. The aggregate AEP also does not factor in diversification.

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% AEP 1 in 30 - Whole World Natural Catastrophes AEP 1 in 30 - US Windstorm RDS Terrorism - Rockefeller Center AEP 1 in 30 - North America Earthquake Final Net Loss as % of 2019 Capacity Final Net Loss as % of 2020 Capacity

Disclaimer

The information in this document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. It is the responsibility

• f any person publishing or communicating the contents of

this document or communication, or any part thereof, to ensure compliance with all applicable legal and regulatory

• requirements. The content of this document does not

represent

• r

constitute a prospectus

• r

invitation in connection with any solicitation of capital. Nor does it constitute an offer to sell securities, a solicitation or an offer to buy or sell securities or a distribution of securities in the United States or to a U.S. person, or in any other jurisdiction where it is contrary to local law. Such person should inform themselves about and

• bserve

any applicable legal requirements. This presentation contains forward looking statements. Although Helios Underwriting plc believes that the estimates and assumptions on which such statements are based are reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond Helios Underwriting plc’s control. Helios Underwriting plc does not make any representation or warranty that the results anticipated by such forward looking statements will be achieved and this presentation should not be relied upon as a guide to future performance. Helios Underwriting plc has provided the material contained in this document for general information purposes only. Helios Underwriting plc accepts no responsibility and shall not be liable for any loss whatsoever which may arise from any reliance upon the information provided in this document.

London Correspondence Address: Helios Underwriting plc C/O Association of Lloyd's Members, 2nd Floor, 22 Bevis Marks, London EC3A 7JB. T +44 (0) 20 7863 6655 F +44 (0) 20 7863 6765 www.huwplc.com Registered number: 05892671 Registered office: 40 Gracehurch Street London EC3V 0BT